"The first step is standardizing the collected (market) rents, putting them on a monthly basis, and adjusting them for a number of circumstances that should not affect the CPI."
It still seems like there is an awful lot of opportunity for them to put their thumb on the scale.
@CR - this kind of post is one of the reasons I read this blog. It'd be refreshing to see this kind of ethic in gov't, business, and personal dealings.
Could the change in OER reflect the change in the rental housing mix? It's not uncommon here to have developments where 50% are rentals of 3500 sqft or larger.
Angry Saver, this might explain part of the lag of OER to REIT rents.
If I wrote a document explaining a confusing topic, I'd start with how I collected the data, and not how I weighted the data (by asking homeowner's opinions of rents). But it was my mistake for not reading it correctly.
shill, not my first mistake (or last). But I always correct them ...
This is part of the reason Tanta and I became such good friends. She would point out some error I made on some esoteric mortgage subject - and I'd always correct the mistakes (at first I did some research to make sure she was correct, later I just relied on T). Tanta liked that I corrected the mistakes ...
OT:
CHARLESTON, SC (AP) - A federal judge in South Carolina has upheld a $4 million verdict for the creator and one-time host of cable television's "Flip This House".
Davis had won a jury award in the breach of contract case.
Davis had argued that he had an oral contract with A&E to evenly divide profits from the show. The network said there was no contract.
I bet a lot of it has to do with concessions... A phone call to a rental office 'whats your rent for a 1 bedroom' could never go down if they fail to mention they are giving two months free or what ever....
For anyone, like me, who wasn't a CR blog reader when Tanta was still with us, I encourage you to read her posts, and the comments that went with them. Thanks to CR keeping them on the blog, I've learned a lot from her writings, and have a big appreciation for her insight and talent.
If I wanted to calculate the cost of living, my inclination is to ask "How much are your mortgage payments + property taxes + insurance?" Simple cashflow questions.
This would of course mean that refinancing to a lower rate lowers housing cost. That sounds appropriate.
However, there is a weird problem with cashout refi. The cost of being a homeowner went negative on a cashflow basis from 2000-2006 for many people. They were able to borrow more money through home equity loans or cashout refis than the cost of their mortgage payments. Was the cost of being a homeowner actually negative for a while? If you looked at cashflow, or market valuation, it appeared to the case. In fact, it was a bubble/pyramid scheme.
Did many people have a negative housing cost from 2000-2006? Yes. However, unless they sold the house, what they were really doing was getting cashflow by adding debt. If they did sell, and then rent, they had a negative housing cost.
why those rents have never fallen (even though REIT rents have) is another question.
Sounds like the weighting is biased towards the people in the survey that think their home is always increasing in value. Also, until recently, home prices had never fallen on an aggregate basis, at least in nominal terms.
"Did many people have a negative housing cost from 2000-2006? Yes. However, unless they sold the house, what they were really doing was getting cashflow by adding debt. If they did sell , or default, and then rent they had a negative housing cost."
OT:
(Reuters) - U.S. private equity firm Blackstone Group LP (BX.N) is in talks with the Shanghai city government to set up a wholly-owned China subsidiary as it prepares to launch a local currency private equity fund, sources said on Thursday.
Shanghai announced last week that the city would soon allow global private equity firms to incorporate locally in China's financial hub so they could launch yuan-denominated funds to invest in Chinese companies.
So the questionare is to control for the difference in rental vs owner/occupied housing? The six month thing is probably because leases are, usually for a year. And yes, I'm also glad to discover that the survey question isn't where the actual DATA comes from.
I realize this thread has been pigged, but for the sake of posterity I also want to thank CR for rechecking and clarifying this.
I think many of us would be interested in a longer UberNerd post that parsed out the OER methodology in full detail.
Even having the weighting based on a survey strikes me as very bizarre. It appears that the weight allocated to OER might be excessive, which means that other prices in the CPI (which may matter more to many households) are "suppressed" in the reported CPI. Furthermore the OER methodology appears to produce results that are excessively stable (smoothed), which again suppresses actual changes in consumer prices. The CPI as a metric of actual real-world inflation (or deflation) is compromised in both ways.
It might also be quite useful to track CPI ex-OER as an alternative metric of inflation. (Which would be more suitable, for instance, to the large fraction of the population who own their homes outright or have fixed-rate mortgages.)
Individuals trying to assess their risk in a stagflationary world will prefer inflation metrics that match their personal situation. If 30% of one's household budget is fixed mortgage PITI, then applying CPI ex-OER adjustments on just the other 70% might be much more sensible than using straight CPI for all 100%.
However, my hat goes off to those who perform all the detailed work in the econometrics. The CPI methodology clearly requires a substantial amount of laborious effort, and while the system may have flaws, it's still helpful. However, it also seems that (like so many other things in 21st-century finance), the CPI is trusted too much by the credulous, and the hidden risk of flaws in CPI methodology is too often underestimated.
I updated the OER definition in Ken's glossary again.
Take back the trillions of $$$ given to the banks, who just sit on it and make it totally ineffective then start government incentive to create realistic industries that give employment and generate real productive income, some of which would hopefully be from exports.
Every other country, especially China and most of Europe have goverment incentives to protect it's industries. No matter what you call it it's a form of protectionism and its inevitable. We should stop being naive and take care of our own house. The only ones who win if we don't are the multinational corporations who don't care where they get their hand out.
Every other country, especially China and most of Europe have goverment incentives to protect it's industries. No matter what you call it it's a form of protectionism and its inevitable. We should stop being naive and take care of our own house. The only ones who win if we don't are the multinational corporations who don't care where they get their hand out.
I posted the survey question in CR comments a while ago and joked about its wild guess.
It does affect OER's effect on CPI.
The entire process involves homeowner surveys and BLS field-agent asessments for initial value and characteristics, including updates to the house after initial selection.
Basing the OER on "real" rent is still strange because it is the real rent of someone else's house, not your house, dependent upon the accuracy of "same" home features and "same" location for the proxy, modified by a utility ajustment but assuming that refrigerator "services" are included.
I live in the Bay Area and would buy a house if it made sense. As it is I rent and am planning to move to a new apartment. The rents are so far below the cost of buying a house I can't imagine why anyone is buying houses now...but they are....though I note that there is very little inventory in the areas I'm looking in. Very strange indeed.
In my search for a new apartment, most are offering incentives. I will not take them up on the incentives, thankyouverymuch. I will only sign on for a rent at market price, which is steadily decreasing. I figure by Fall, after high moving season is over, some of these landlords will face facts and realize that months of advertising the same apartment at inflated rent with move-in incentive isn't working.
Well of course as a VERY durable good, at a conceptual level it just isn't possible to measure housing in a way that will be equally useful for ALL the the uses that people put CPI to. People simply don't buy houses every year, so if you're using CPI to track the "cost of living," you want some "smoothing" because people's spending on it is "smoothed." I am not alone in being not directly affected by the housing bubble since my cost basis was set in 1999.
Probably not first -- but hey. Thanks, CR -- I knew the original definition was a bit too wiggy even for the gov't.
It is all confusing. Thanks for trying to clarify some.
Do we believe any numbers from the gov't?
"The first step is standardizing the collected (market) rents, putting them on a monthly basis, and adjusting them for a number of circumstances that should not affect the CPI."
It still seems like there is an awful lot of opportunity for them to put their thumb on the scale.
The six month deal seems to explain why OER is still increasing. I think OER will start to ebb shortly.
(Troffed, but verify)
Obama could turn out to be Gorbachev or Rama V, or perhaps a Siamese-Twin of the 2?
@CR - this kind of post is one of the reasons I read this blog. It'd be refreshing to see this kind of ethic in gov't, business, and personal dealings.
I think OER will start to ebb shortly.
along with employment I suspect.
--bh
Could the change in OER reflect the change in the rental housing mix? It's not uncommon here to have developments where 50% are rentals of 3500 sqft or larger.
Angry Saver, this might explain part of the lag of OER to REIT rents.
If I wrote a document explaining a confusing topic, I'd start with how I collected the data, and not how I weighted the data (by asking homeowner's opinions of rents). But it was my mistake for not reading it correctly.
best to all.
Don't matter CR your still Number 1 in my book.
CR,
You might want to ask them how it is that OER hasnt fallen in 3 decades? OER is the biggest myth.
Classy and humble as always CR a big fat Hat Tip to you....
shill, not my first mistake (or last). But I always correct them ...
This is part of the reason Tanta and I became such good friends. She would point out some error I made on some esoteric mortgage subject - and I'd always correct the mistakes (at first I did some research to make sure she was correct, later I just relied on T). Tanta liked that I corrected the mistakes ...
best wishes
S, at least they are using market rents ... why those rents have never fallen (even though REIT rents have) is another question.
best wishes
To bad the Government can't admit their mistakes. Great job CR!
OT:
CHARLESTON, SC (AP) - A federal judge in South Carolina has upheld a $4 million verdict for the creator and one-time host of cable television's "Flip This House".
Davis had won a jury award in the breach of contract case.
Davis had argued that he had an oral contract with A&E to evenly divide profits from the show. The network said there was no contract.
I bet a lot of it has to do with concessions... A phone call to a rental office 'whats your rent for a 1 bedroom' could never go down if they fail to mention they are giving two months free or what ever....
For anyone, like me, who wasn't a CR blog reader when Tanta was still with us, I encourage you to read her posts, and the comments that went with them. Thanks to CR keeping them on the blog, I've learned a lot from her writings, and have a big appreciation for her insight and talent.
What a difference 33 weeks makes
5,544 little hours..
CR, thank you for your integrity.
Takes a real mature person to admit their mistake; let alone correct it.
Kudos.
CR, it was really the evil Nemo that made the mistakes. We know.
If I wanted to calculate the cost of living, my inclination is to ask "How much are your mortgage payments + property taxes + insurance?" Simple cashflow questions.
This would of course mean that refinancing to a lower rate lowers housing cost. That sounds appropriate.
However, there is a weird problem with cashout refi. The cost of being a homeowner went negative on a cashflow basis from 2000-2006 for many people. They were able to borrow more money through home equity loans or cashout refis than the cost of their mortgage payments. Was the cost of being a homeowner actually negative for a while? If you looked at cashflow, or market valuation, it appeared to the case. In fact, it was a bubble/pyramid scheme.
Did many people have a negative housing cost from 2000-2006? Yes. However, unless they sold the house, what they were really doing was getting cashflow by adding debt. If they did sell, and then rent, they had a negative housing cost.
JD - how do you get 5544 out of 31 hrs/wk?
why those rents have never fallen (even though REIT rents have) is another question.
Sounds like the weighting is biased towards the people in the survey that think their home is always increasing in value. Also, until recently, home prices had never fallen on an aggregate basis, at least in nominal terms.
Good glod!
"10-YEAR TREASURY NOTE (^TNX) At 1:08PM ET: 3.83 Up 0.1870 (5.13%)"
108 BB$ in auctions next week to boot? I hope Ben has the press ready.
2 loaned wrongs don't make a REIT
To get better rent rates, tennants have to move. The deals are there if you are ready to experience the pain of moving. No pain, no gain.
"Did many people have a negative housing cost from 2000-2006? Yes. However, unless they sold the house, what they were really doing was getting cashflow by adding debt. If they did sell , or default, and then rent they had a negative housing cost."
OT:
(Reuters) - U.S. private equity firm Blackstone Group LP (BX.N) is in talks with the Shanghai city government to set up a wholly-owned China subsidiary as it prepares to launch a local currency private equity fund, sources said on Thursday.
Shanghai announced last week that the city would soon allow global private equity firms to incorporate locally in China's financial hub so they could launch yuan-denominated funds to invest in Chinese companies.
Oink!
One of the many reasons I read CR not just every day, but multiple times per day.
Honesty and integrity: a model the corporate media should try some time.
So the questionare is to control for the difference in rental vs owner/occupied housing? The six month thing is probably because leases are, usually for a year. And yes, I'm also glad to discover that the survey question isn't where the actual DATA comes from.
I realize this thread has been pigged, but for the sake of posterity I also want to thank CR for rechecking and clarifying this.
I think many of us would be interested in a longer UberNerd post that parsed out the OER methodology in full detail.
Even having the weighting based on a survey strikes me as very bizarre. It appears that the weight allocated to OER might be excessive, which means that other prices in the CPI (which may matter more to many households) are "suppressed" in the reported CPI. Furthermore the OER methodology appears to produce results that are excessively stable (smoothed), which again suppresses actual changes in consumer prices. The CPI as a metric of actual real-world inflation (or deflation) is compromised in both ways.
It might also be quite useful to track CPI ex-OER as an alternative metric of inflation. (Which would be more suitable, for instance, to the large fraction of the population who own their homes outright or have fixed-rate mortgages.)
Individuals trying to assess their risk in a stagflationary world will prefer inflation metrics that match their personal situation. If 30% of one's household budget is fixed mortgage PITI, then applying CPI ex-OER adjustments on just the other 70% might be much more sensible than using straight CPI for all 100%.
However, my hat goes off to those who perform all the detailed work in the econometrics. The CPI methodology clearly requires a substantial amount of laborious effort, and while the system may have flaws, it's still helpful. However, it also seems that (like so many other things in 21st-century finance), the CPI is trusted too much by the credulous, and the hidden risk of flaws in CPI methodology is too often underestimated.
I updated the OER definition in Ken's glossary again.
Take back the trillions of $$$ given to the banks, who just sit on it and make it totally ineffective then start government incentive to create realistic industries that give employment and generate real productive income, some of which would hopefully be from exports.
Every other country, especially China and most of Europe have goverment incentives to protect it's industries. No matter what you call it it's a form of protectionism and its inevitable. We should stop being naive and take care of our own house. The only ones who win if we don't are the multinational corporations who don't care where they get their hand out.
good articles: Financial Opinions Updated Daily iamned.com
agree completely
Every other country, especially China and most of Europe have goverment incentives to protect it's industries. No matter what you call it it's a form of protectionism and its inevitable. We should stop being naive and take care of our own house. The only ones who win if we don't are the multinational corporations who don't care where they get their hand out.
I posted the survey question in CR comments a while ago and joked about its wild guess.
It does affect OER's effect on CPI.
The entire process involves homeowner surveys and BLS field-agent asessments for initial value and characteristics, including updates to the house after initial selection.
Basing the OER on "real" rent is still strange because it is the real rent of someone else's house, not your house, dependent upon the accuracy of "same" home features and "same" location for the proxy, modified by a utility ajustment but assuming that refrigerator "services" are included.
I live in the Bay Area and would buy a house if it made sense. As it is I rent and am planning to move to a new apartment. The rents are so far below the cost of buying a house I can't imagine why anyone is buying houses now...but they are....though I note that there is very little inventory in the areas I'm looking in. Very strange indeed.
In my search for a new apartment, most are offering incentives. I will not take them up on the incentives, thankyouverymuch. I will only sign on for a rent at market price, which is steadily decreasing. I figure by Fall, after high moving season is over, some of these landlords will face facts and realize that months of advertising the same apartment at inflated rent with move-in incentive isn't working.
Well of course as a VERY durable good, at a conceptual level it just isn't possible to measure housing in a way that will be equally useful for ALL the the uses that people put CPI to. People simply don't buy houses every year, so if you're using CPI to track the "cost of living," you want some "smoothing" because people's spending on it is "smoothed." I am not alone in being not directly affected by the housing bubble since my cost basis was set in 1999.